Libor Dragnet Snares Three Men in U.K.

Arrests Mark the Opening of New Phase in Global Rate-Manipulation Probe as Focus Moves From Banks to Individuals

By

David Enrich

Updated Dec. 11, 2012 1:15 p.m. ET

LONDON—British law-enforcement authorities arrested three men Tuesday as part of a widening criminal investigation into attempted manipulation of interest rates.

The U.K. Serious Fraud Office said the three British nationals, aged 33, 41 and 47, were questioned at a London police station and that authorities searched their homes near London.

While the SFO didn't identify the men, one of them is Thomas Hayes, a former trader at UBS AG and Citigroup Inc., according to people familiar with the matter. Authorities in multiple countries have been looking into Mr. Hayes as an alleged coordinator of a group of employees at multiple banks who sought to manipulate the London interbank offered rate, or Libor, according to people familiar with the case.

One of the others arrested was Terry Farr, an employee of British brokerage firm R.P. Martin Holdings Ltd. in London who is currently on leave from the firm, according to a person familiar with the case. Mr. Farr has been under investigation for possibly helping bank employees coordinate their efforts to influence Libor, according to people familiar with the case.

Messrs. Hayes and Farr could not be reached for comment.

ENLARGE

The SFO launched its criminal investigation in July after Barclays settled U.S. and British allegations that its traders and executives were involved with attempted rate-fixing.
Reuters

Tuesday's arrests mark a new phase in the wide-ranging civil and criminal investigations of attempted rigging of Libor and other widely used benchmark interest rates, such as the euro interbank offered rate, or Euribor. More than a dozen banks are under investigation by authorities in several countries.

This appears to be the first time that authorities in the U.K. or elsewhere have arrested individuals in connection with the case, which so far has focused primarily on getting banks to admit wrongdoing and pay large financial penalties.

The SFO launched its criminal investigation in July, shortly after Barclays PLC agreed to pay roughly $450 million to settle U.S. and British allegations that its traders and executives were involved with attempted rate-fixing. U.S. criminal authorities have been investigating rate-rigging for much longer but haven't charged anyone.

In the U.K., authorities arrest individuals in the early, information-gathering stages of an investigation. It doesn't necessarily mean that the individuals ultimately will be charged with a crime.

Authorities in the U.S. and elsewhere have been focusing on rings of traders at various banks who allegedly tried to coordinate their efforts to improperly influence Libor and Euribor. Investigators also are looking at whether brokers at firms such as R.P. Martin acted as middlemen, helping traders and other bank employees coordinate their efforts to rig benchmark rates, according to people briefed on the cases.

Mr. Hayes has emerged as a key figure in multiple countries' investigations. He worked in Tokyo as a trader at UBS from 2006 to 2009 before jumping to Citigroup. Citigroup fired him in 2010 as Libor-manipulation investigations were gaining steam, people familiar with the matter have said.

Mr. Hayes was the main trader in Japanese authorities' civil enforcement action against UBS and Citigroup last year for their attempted manipulation of Libor, according to people close to that investigation. People familiar with the matter have said Mr. Hayes was the "Trader A" whom Canadian competition authorities accused of working with traders at other banks to push Libor up or down.

The arrests are likely the first in a small flurry of upcoming Libor-related developments. UBS could settle rate-rigging allegations with authorities in multiple countries as soon as this week, according to people familiar with the negotiations. Royal Bank of Scotland Group PLC executives are hoping to wrap up similar settlement talks in the near future.

Libor and Euribor are calculated by daily surveys of banks, which estimate how much it costs a bank to borrow money from a fellow lender. The result is an average—with the highest and lowest handful of estimates excluded—that serves as the basis for interest rates on hundreds of trillions of dollars of loans, derivatives and financial products around the world.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.